The Goods and Sales Tax (GST) is an indirect tax across India aimed to replace taxes imposed by state and central government. It was introduced as the constitution (122 amendment) Act 2016, following the passage of Constitution 122nd amendment bill.
New Delhi believes that introduction of Goods and Services Tax (GST) is a step in the reform of indirect taxation in India and it subsumes several central and state taxes into a single tax that would mitigate the problem of double taxation.
Union Finance Minister, Arun Jaitely, said that there are many tax brackets in the GST to ensure that low tax rates for mass consuming goods. In a press conference which was held at Srinagar after the GST council meeting, Jaitely said that though Jammu and Kashmir state was full empowered to legislate over the GST, those who are opposing the tax in the state lacked understanding.
New Delhi is pressing on the state that in terms of consumer point of view, the biggest advantage would be reduction in the overall tax burden on goods, which is currently estimated at 25%-30%, free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax and reduction in paperwork to a large extent.
It has also argued with the state that GST will incorporate various indirect taxes including central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and octroi. Other levies which are currently applicable on inter-state transportation of goods will also be done away with in GST regime.
Taxes like Central Excise Duty, Service Tax, Commercial Tax, Value Added Tax (VAT), Food Tax, Central Sales Tax (CST), Octroi Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax, Advertisement taxes, Taxes applicable on lotteries will be bound together by the GST.
GST is levied on all transactions such as sale, transfer,purchase, barter, lease, or import of goods and/or services. India will adopt a dual GST model, meaning that taxation is administered by both the Union and state governments. Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government.
GST is a consumption based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them to collect the tax owed to them directly from the Central Government. Under the previous system, a state would have to only deal with a single government in order to collect tax revenue.
Central government has argued that the GST is expected to integrate the state of Jammu and Kashmir with the mainstream Indian economy like never before.
Though the recently passed Goods and Services Tax Act excludes the state of Jammu & Kashmir from its applicability, experts state that this is not to be interpreted to mean that GST will not be implemented in the state.
The Article 370 of the Constitution grants special autonomous status to the state of Jammu and Kashmir. However, the Parliament of India retains the power to make laws on defence, external affairs and communication-related matters of the state. This is one of the reasons why the service tax levied all over the India since 1994 is still not applicable in J&K. The state levies its own taxes for services provided.
The state government of J&K can still integrate its revenue with Goods and Services Tax, provided they pass two separate bills in the state assembly. The J&K Assembly will have to pass a legislation stating that the two laws viz. Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) are applicable to them. This approval by the state assembly will be in addition to the requirement of all states to approve the State GST law.
Once this is done, the Central government will again be required to amend the CGST and IGST law and extend the applicability to the state of Jammu and Kashmir; which is currently not the case.